As previously mentioned in our earlier blogs, you can earn Bitcoins by volunteering in the Blockchain network and process transactions. This is what you call Bitcoin Mining. It is the process of earning bitcoin in exchange for running the verification to validate bitcoin transactions. Mining provides security to the network and miners are compensated by giving them Bitcoins in return. For a certain number of blocks that a miner adds to the blockchain by successfully validating and processing transactions in the network, new Bitcoins are created which will then be awarded to the miners.
This is the reason why Bitcoin mining is one of the most lucrative careers in relation to Bitcoin. However, in order to determine its actual profitability, one has to determine whether the cost of activity can be covered up by its revenue and more. With recent changes in technology and the creation of professional mining centers with enormous computing power, many individual miners are asking themselves, is bitcoin mining still profitable?
Before we answer this question, let’s dive a little deeper on how does Bitcoin mining works.
How Bitcoin Mining works?
Bitcoin mining has two basic functions: (1) to verify and store Bitcoin transactions in individual blocks that are to be connected to the blockchain, and (2) to create new bitcoins (hence, the name “mining”).
The entire Bitcoin mining process is not done manually by people like how we are mining gold or diamonds. But it’s kind of work that way – but instead, it’s computers that does it. As we all know, Bitcoin and other cryptocurrencies is using cryptography to process transactions. In order for the transactions to be verified, these cryptograms need to solved through mathematical formulas. The first miner to be able to solve the math problems to process the block and add it to the blockchain will be awarded by 12.5 BTC.
In that scenario alone, the two purposes of Bitcoin mining has already been fulfilled. The transactions have been processed and new bitcoins have been created. But creation of Bitcoins is not unlimited. The system is created and designed in such a way that only 21 million BTCs can only be created. At present, there are over 17,225,338 Bitcoins that have been mined and there’s still a lot more to be created.
However, this brings us back to our original question: Is mining bitcoins still profitable?
What you need to mine Bitcoins?
Here are the basic equipments and tools you need in order to start mining bitcoins:
In the early years of Bitcoin mining, miners are using their home computers to mine Bitcoins. All they needed to do is to incorporate some specific settings and tweaks to improve the computing powers of their personal computers to handle the requirements of Bitcoin mining. However, But the introduction of application specific integrated circuit chips (ASIC) offered up to 100x the capability of older personal machines, rendering the use of personal computing to mine bitcoins inefficient and obsolete.
Fast Internet Connection
Together with a specialized computer and software, Bitcoin mining also requires a fast a stable internet connection. This is very intuitive as the blockchain network exists in cyberspace and can only be accessed through the internet. Furthermore, in order for the Bitcoin to be mined by your system, you have to be the first one to solve the cryptogram, and a slow internet connection would not allow you to do that.
Electricity (A lot of it!)
Bitcoin mining is an evergoing continuous process. This means that your mining system should be up and running 24 hours a day, seven days a week. Using computers require a lot of electricity; let alone using specialized ones with huge computing power. In fact, the Bitcoin mining industry is one of the biggest electricity and energy consumption in the world.
Aside from the purchase of specialized equipment, electricity is the biggest cost a miner can have is their electricity costs. Depending on the geolocation (as other countries have more expensive electricity), some miners can’t even reach breakeven with just their electricity cost to earn their Bitcoins.
So, is Bitcoin Mining still profitable?
The development of application specific integrated circuit chips (ASIC) offered up to 100x the capability of older personal machines has changed the game. The technology has made a huge barrier of entry for those who want to start mining Bitcoins. Worse, they put individuals miners who have already been in the industry for a long time in a very compromised position.
Individuals were now competing against large bitcoin mining centers who had more computing power. Mining profits were getting chipped away by expenses like purchasing new computing equipment, paying higher energy costs for running the new equipment, and the continued difficulty in mining.
However, there are some workarounds for individual miners to do in order to improve their chance of competing against these well-funded Bitcoin mining centers. Some of them join mining pools or a group of miners that work together to mine coins and share the rewards after. This can increase the speed and reduce the difficulty in mining, putting profitability in reach.
So now you understand how Bitcoin mining works, what you need, and what to expect in relation to the competition you’re going to face once you decide to jump in the industry. We are not saying that you should not; what we say is that when deciding, you have to factor in these things in your decision making. Study the market, analyze your profitability. Once you’ve done all the necessary research like cost-benefit analysis, determine whether the risk is something you can handle. If your analysis says you can do it, go ahead!